(c)"goods of the same class or kind", means imported goods that
are withina group or
range of imported goods produced by a particular industry or industrial sector
and includes identical goods or similar goods;

(d)"identical goods"
means imported goods -

(i)which
are same in all respects, including physical characteristics, quality and
reputation as the goods being valued except for minor differences in appearance
that do not affect the value of the goods;

(ii)produced in the country in
which the goods being valued were produced;
and

(iii)produced by the same person who produced the
goods, or where no such goods are available, goods produced by a different
person,

but
shall not include imported goods where engineering, development work, art work,
design work, plan or sketch undertaken in India were completed directly or
indirectly by the buyer on these imported goods free of charge or at a reduced
cost for use in connection with the production and sale for export of these
imported goods;

(e)“produced"
includes grown, manufactured and mined

(f)"similar
goods" means imported goods -

(i) which although not alike in all respects, have like characteristics
and like component materials which enable them to perform the same functions and
to be commercially interchangeable with the goods being valued having regard to
the quality, reputation and the existence of trade mark;

(ii) produced in the
country in which the goods being valued were produced; and

(iii) produced by the same person who produced the goods being valued, or
where no such goods are available, goods produced by a different person,

but shall not include imported goods where engineering, development work,
art work, design work, plan or sketch undertaken in India were completed
directly or indirectly by the buyer on these imported goods free of charge or at
a reduced cost for use in connection with the production and sale for export of
these imported goods;

(g)"transaction value"
means the value referred to in
sub-section (1) of section 14 of the Customs Act, 1962;

(2)For the
purpose of these rules, persons shall be deemed to be "related" only
if -

(i)they are
officers or directors of one another's businesses;

(ii)they are
legally recognised partners in business;

(iii)they are
employer and employee;

(iv)any person directly or
indirectly owns, controls or holds five per cent or more of the outstanding
voting stock or shares of both of them;

(v)one of them
directly or indirectly controls the other;

(vi)both of them are directly or indirectly controlled by a third person;

(vii)together
they directly or indirectly control a third person; or

(viii)they
are members of the same family.

Explanation I. -
The term "person" also includes legal persons.

Explanation
II. - Persons who are associated in the business of one another in that one
is the sole agent or sole distributor or sole concessionaire, howsoever
described, of the other shall be deemed to be related for the purpose of these
rules, if they fall within the criteria of this sub-rule.

3.Determination
of the method of valuation.- (1) Subject to rule 12, the value of imported
goods shall be the transaction value adjusted in accordance with provisions of
rule 10;

(2)Value of
imported goods under sub-rule (1) shall be accepted:

Provided that -

(a) there are no restrictions as to the disposition or use of the goods
by the buyer other than restrictions which –

(i)are imposed or required by law
or by the public authorities in India; or

(ii)limit the
geographical area in which the goods may be resold; or

(iii)do not
substantially affect the value of the goods;

(b)the sale or price is not subject
tosomecondition or
consideration for which a value cannot be determined in respect of the goods
being valued;

(c)no part of the proceeds of any
subsequent resale, disposal or use of the goods by the buyer will accrue
directly or indirectly to the seller, unless an appropriate adjustment can be
made in accordance with the provisions of rule 10 of these rules; and

(d)the buyer and seller are not
related, or where the buyer and seller are related, that transaction value is
acceptable for customs purposes under the provisions of sub-rule (3) below.

(3)(a)Where the buyer and seller are related, the transaction value shall be
accepted provided that the examination of the circumstances of the sale of the
imported goods indicate that the relationship did not influence the price.

(b)In a sale between related
persons, the transaction value shall be accepted, whenever the importer
demonstrates that the declared value of the goods being valued, closely
approximates to one of the following values ascertained at or about the same
time.

(i)the transaction value of
identical goods, or of similar goods, in sales to unrelated buyers in India;

(ii)the deductive
value for identical goods or similar goods;

(iii)the computed
value for identical goods or similar goods:

Provided that in applying the values used for comparison,due account shall be taken of demonstrated difference in commercial
levels, quantity levels, adjustments in accordance with the provisions of rule
10 and cost incurred by the seller in sales in which he and the buyer are not
related;

(c) substitute values shall not be established under the provisions of
clause (b) of this sub-rule.

(4)if the value cannot be determined under the provisions of sub-rule (1),
the value shall be determined by proceeding sequentially through rule 4 to 9.

4.Transaction
value of identical goods. — (1)(a)Subject to the provisions of rule 3, the
value of imported goods shall be the transaction value of identical goods sold
for export to India and imported at or about the same time as the goods being
valued;

Provided that such transaction value shall not be the value of the goods provisionally
assessed under section 18 of the Customs Act, 1962.

(b)In applying this rule, the
transaction value of identical goods in a sale at the same commercial level and
in substantially the same quantity as the goods being valued shall be used to
determine the value of imported goods.

(c)Where no sale referred to in
clause (b) of sub-rule (1), is found, the transaction value of identical goods
sold at a different commercial level or in different quantities or both,
adjusted to take account of the difference attributable to commercial level or
to the quantity or both, shall be used, provided that such adjustments shall be
made on the basis of demonstrated evidence which clearly establishes the
reasonableness and accuracy of the adjustments, whether such adjustment leads to
an increase or decrease in the value.

(2)Where the costs and charges referred to in sub-rule (2) of rule 10
of these rules are included in the transaction value of identical goods,
an adjustment shall be made, if there are significant differences in such costs
and charges between the goods being valued and the identical goods in question
arising from differences in distances and means of transport.

(3)In applying this rule, if more than one transaction value of identical
goods is found, the lowest such value shall be used to determine the value of
imported goods.

5.Transaction value of similar
goods. — (1)Subject to the provisions of rule 3, the value of imported
goods shall be the transaction value of similar goods sold for export to India
and imported at or about the same time as the goods being valued:

Provided that such transaction value shall not be the value of the goods provisionally
assessed under section 18 of the Customs Act, 1962.

(2)The provisions of clauses (b) and (c) of sub-rule (1), sub-rule (2) and
sub-rule (3), of rule 4 shall, mutatis mutandis, also apply in respect of
similar goods.

6.Determination
of value where value can not be determined under rules 3, 4 and 5. -
If the value of imported goods cannot be determined under the provisions of
rules 3, 4 and 5, the value shall be determined under the provisions of rule 7
or, when the value cannot be determined under that rule, under rule 8.

Provided that at the request of the importer, and with the approval of
the proper officer, the order of application of rules 7 and 8 shall be reversed.

7.Deductive value. — (1)Subject to the provisions of rule 3, if the goods being valued or
identical or similar imported goods are sold in India, in the condition as
imported at or about the time at which the declaration for determination of
value is presented, the value of imported goods shall be based on the unit price
at which the imported goods or identical or similar imported goods are sold in
the greatest aggregate quantity to persons who are not related to the sellers in
India, subject to the following deductions : —

(i)either
the commission usually paid or agreed to be paid or the additions usually made
for profits and general expenses in connection with sales in India of imported
goods of the same class or kind;

(ii)the usual costs of
transport and insurance and associated costs incurred within India;

(iii)the customs duties and other taxes payable in India by reason of
importation or sale of the goods.

(2)If neither the imported goods nor identical nor similar imported goods
are sold at or about the same time of importation of the goods being valued, the
value of imported goods shall, subject otherwise to the provisions of sub-rule
(1), be based on the unit price at which the imported goods or identical or
similar imported goods are sold in India, at the earliest date after importation
but before the expiry of ninety days after such importation.

(3)(a)If neither the imported goods nor identical nor similar imported goods
are sold in India in the condition as imported, then, the value shall be based
on the unit price at which the imported goods, after further processing, are
sold in the greatest aggregate quantity to persons who are not related to the
seller in India.

(b)In such determination, due allowance shall be made for the value added by
processing and the deductions provided for in items (i) to (iii) of sub-rule
(1).

8.Computed value. — Subject to the provisions of rule 3,
the value of imported goods shall be based on a computed value, which shall
consist of the sum of:-

(a)the cost or value of materials and fabrication or other processing
employed in producing the imported goods;

(b)an amount for profit and general expenses equal to that usually reflected
in sales of goods of the same class or kind as the goods being valued which are
made by producers in the country of exportation for export to India;

(c)the cost or value of all other expenses under sub-rule (2) of rule 10.

9.Residual method. — (1) Subject to the
provisions of rule 3, where the value of imported goods cannot be determined
under the provisions of any of the preceding rules, the value shall be
determined using reasonable means consistent with the principles and general
provisions of these rulesand on
the basis of data available in India;

Provided that the value so determined shall not exceed
the price at which such or like goods are ordinarily sold or offered for sale
for delivery at the time and place of importation in the course of international
trade, when the seller or buyer has no interest in the business of other and
price is the sole consideration for the sale or offer for sale.

(2)No value shall be determined under the provisions of' this rule on the
basis of —

(i)the
selling price in India of the goods produced in India;

(ii)a system
which provides for the acceptance for customs purposes of the highest of the two
alternative values;

(iii)the price of
the goods on the domestic market of the country of exportation;

(iv)the cost of production other than computed values which have
been determined for identical or similar goods in accordance with the provisions
of rule 8;

(v)the price of
the goods for the export to a country other than India;

(vi)minimum customs values; or

(vii)arbitrary or fictitious values.

10.Cost
and services. -(1)In determining the transaction value, there shall be added
to the price actually paid or payable for the imported goods, —

(a)the following to the
extent they are incurred by the buyer but are not included in the price actually
paid or payable for the imported goods, namely:-

(i)commissions and brokerage, except buying commissions;

(ii)the cost of containers
which are treated as being one for customs purposes with the goods in question;

(iii)the
cost of packing whether for labour or materials;

(b)The value,
apportioned as appropriate, of the following goods and services where supplied
directly or indirectly by the buyer free of charge or at reduced cost for use in
connection with the production and sale for export of imported goods, to the
extent that such value has not been included in the price actually paid or
payable, namely:-

(i)materials, components, parts and
similar items incorporated in the imported goods;

(ii)tools, dies,
moulds and similar items used in the production of the Imported goods;

(iii)materials
consumed in the production of the imported goods;

(iv)engineering, development,
art work, design work, and plans and sketches undertaken elsewhere than in India
and necessary for the production of the imported goods;

(c)royalties and licence fees related to the imported goods that the buyer
is required to pay, directly or indirectly, as a condition of the sale of the
goods being valued, to the extent that such royalties and fees are not included
in the price actually paid or payable;

(d)The value of any
part of the proceeds of any subsequent resale, disposal or use of the imported
goods that accrues, directly or indirectly, to the seller;

(e)all other
payments actually made or to be made as a condition of sale of the imported
goods, by the buyer to the seller, or by the buyer to a third party to satisfy
an obligation of the seller to the extent that such payments are not included in
the price actually paid or payable.

Explanation.-
Where the royalty, licence fee or any other payment for a process, whether
patented or otherwise, is includible referred to in clauses (c) and (e), such
charges shall be added to the price actually paid or payable for the imported
goods, notwithstanding the fact that such goods may be subjected to the said
process after importation of such goods.

(2)For the purposes of
sub-section (1) of section 14 of the Customs Act, 1962 (52 of 1962) and these
rules, the value of the imported goods shall be the value of such goods, for
delivery at the time and place of importation and shall include –

(a)the
cost of transport of the imported goods to the place of importation;

(b)loading, unloading and handling
charges associated with the delivery of the imported goods at the place of
importation; and

(c)the
cost of insurance :

Provided that —

(i)where the cost of transport
referred to in clause (a) is not ascertainable, such cost shall be twenty per
cent of the free on board value of the goods;

(ii)the charges referred to in
clause (b) shall be one per cent of the free on board value of the goods plus
the cost of transport referred to in clause (a) plus the cost of insurance
referred to in clause (c);

(iii)where the cost referred to in
clause (c) is not ascertainable, such cost shall be 1.125% of free on board
value of the goods;

Provided further that in the case of goods imported by air, where the
cost referred to in clause (a) is ascertainable, such cost shall not exceed
twenty per cent of free on board value of the goods:

Provided also that where the free on board value of the goods is
not ascertainable, the costs referred to in clause (a) shall be twenty per cent
of the free on board value of the goods plus cost of insurance for clause (i)
above and the cost referred to in clause (c) shall be 1.125% of the free on
board value of the goods plus cost of transport for clause (iii).

Provided also that in case of goods imported by sea stuffed in a
container for clearance at an Inland Container Depot or Container Freight
Station, the cost of freight incurred in the movement of container from the port
of entry to the Inland Container Depot or Container Freight Station shall not be
included in the cost of transport referred to in clause (a).

Explanation.-
The cost of transport of the imported goods referred to in clause (a) includes
the ship demurrage charges on charted vessels, lighterage or barge charges.

(3)Additions to the price actually paid or payable shall be made under this
rule on the basis of objective and quantifiable data.

(4)No addition shall be made to the price actually paid or payable in
determining the value of the imported goods except as provided for in this rule.

11.Declaration by the importer.
— (1)The importer or his agent shall furnish -

(a)a declaration disclosing
full and accurate details relating to the value of imported goods; and

(b)any other statement, information
or document including an invoice of the manufacturer or producer of the imported
goods where the goods are imported from or through a person other than the
manufacturer or producer, as considered necessary by the proper officer for
determination of the value of imported goods under these rules.

(2)Nothing contained in these rules shall be construed as restricting or
calling into question the right of the proper officer of customs to satisfy
himself as to the truth or accuracy of any statement, information, document or
declaration presented for valuation purposes.

(3)The provisions
of the Customs Act, 1962 (52 of 1962) relating to confiscation, penalty and
prosecution shall apply to cases where wrong declaration, information, statement
or documents are furnished under these rules.

12.
Rejection of declared value. — (1) When the proper officer has
reason to doubt the truth or accuracy of the value declared in relation to any
imported goods, he may ask the importer of such goods to furnish further
information including documents or other evidence and if, after receiving such
further information, or in the absence of a response of such importer, the
proper officer still has reasonable doubt about the truth or accuracy of the
value so declared, it shall be deemed that the transaction value of such
imported goods cannot be determined under the provisions of sub-rule (1) of rule
3.

(2)At the request
of an importer, the proper officer, shall intimate the importer in writing the
grounds for doubting the truth or accuracy of the value declared in relation to
goods imported by such importer and provide a reasonable opportunity of being
heard, before taking a final decision under sub-rule (1).

Explanation.-(1)
For the removal of doubts, it is hereby declared that:–

(i)
This rule by itself does not provide a method for determination of value, it
provides a mechanism and procedure for rejection of declared value in cases
where there is reasonable doubt that the declared value does not represent the
transaction value; where the declared value is rejected, the value shall be
determined by proceeding sequentially in accordance with rules 4 to 9.

(ii)
The declared value shall be accepted where the proper officer is satisfied about
the truth and accuracy of the declared value after the said enquiry in
consultation with the importers.

(iii)
The proper officer shall have the powers to raise doubts on the truth or
accuracy of the declared value based on certain reasons which may include -

(a)
the significantly higher value at which identical or similar goods imported at
or about the same time in comparable quantities in a comparable commercial
transaction were assessed;

(d) the
misdeclaration of goods in parameters such as description, quality, quantity,
country of origin, year of manufacture or production;

(e) the
non declaration of parameters such as brand, grade, specifications that have
relevance to value;

(f) the fraudulent or manipulated documents.

13.Interpretative
notes. — The interpretative notes specified in the Schedule to these rules
shall apply for the interpretation of these rules.

The
Schedule
(See rule 13)

Interpretative
Notes

General
Note:

Use
of generally accepted accounting principles

1."Generally accepted accounting principles" refers to the
recognized consensus or substantial authoritative support within a country at a
particular time as to which economic resources and obligations shall be recorded
as assets and liabilities, which changes in assets and liabilities should be
recorded, how the assets and liabilities and changes in them should be measured,
what information should be disclosed and how it should be disclosed and which
financial statements should be prepared. These standards may be broad guidelines
of general application as well as detailed practices and procedures.

Notes
to rules

Note
to rule 2

In
rule 2(2)(v), for the purposes of these rules, one person shall be deemed to
control another when the former is legally or operationally in a position to
exercise restraint or direction over the latter.

Note
to rule 3

Price
actually paid or payable

The
price actually paid or payable is the total payment made or to be made by
the buyer to or for the benefit of the seller for the imported goods. The
payment need not necessarily take the form of a transfer of money. Payment may
be made by way of letters of credit or negotiable instruments. Payment may be
made directly or indirectly. An example of an indirect payment would be the
settlement by the buyer, whether in whole or in part, of a debt owed by the
seller.

Activities
undertaken by the buyer on his own account, other than those for which an
adjustment is provided in rule 10, are not considered to be an indirect payment
to the seller, even though they might be regarded as of benefit to the seller.
The costs of such activities shall not, therefore, be added to the price
actually paid or payable in determining the value of imported goods.

The
value of imported goods shall not include the following charges or costs,
provided that they are distinguished from the price actually paid or payable for
the imported goods:

(a)Charges for construction,
erection, assembly, maintenance or technical assistance, undertaken after
importation on imported goods such as industrial plant, machinery or equipment;

(b)The cost of
transport after importation;

(c)Duties and taxes in
India.

The
price actually paid or payable refers to the price for the imported goods. Thus
the flow of dividends or other payments from the buyer to the seller that do not
relate to the imported goods are not part of the customs value.

Rule
3(2)(a) (iii)

Among
restrictions which would not render a price actually paid or payable
unacceptable are restrictions which do not substantially affect the value of the
goods. An example of such restrictions would be the case where a seller requires
a buyer of automobiles not to sell or exhibit them prior to a fixed date which
represents the beginning of a model year.

Rule
3(2)(b)

If
the sale or price is subject to some condition or consideration for which a
value cannot be determined with respect to the goods being valued, the
transaction value shall not be acceptable for customs purposes. Some examples of
this include-

(a)The seller establishes the price
of the imported goods on condition that the buyer will also buy other goods in
specified quantities;

(b)the price of the imported goods
is dependent upon the price or prices at which the buyer of the imported goods
sells other goods to the seller of the imported goods;

(c)the price is established on the
basis of a form of payment extraneous to the imported goods, such as where the
imported goods are semifinished goods which have been provided by the seller on
condition that he will receive a specified quantity of the finished goods.

However,
conditions or considerations relating to the production or marketing of the
imported goods shall not result in rejection of the transaction value. For
example, the fact that the buyer furnishes the seller with engineering and plans
undertaken in India shall not result in rejection of the transaction value for
the purposes of rule 3. Likewise, if the buyer undertakes on his own account,
even though by agreement with the seller, activities relating to the marketing
of the imported goods, the value of these activities is not part of the value of
imported goods nor shall such activities result in rejection of the transaction
value.

Rule
3(3)

1.Rule 3(3)(a)
and rule 3(3)(b) provide different means of establishing the acceptability of a
transaction value.

2.Rule 3(3)(a)
provides that where the buyer and the seller are related, the circumstances
surrounding the sale shall be examined and the transaction value shall be
accepted as the value of imported goods provided that the relationship did not
influence the price. It is not intended that there should be an examination of
the circumstances in all cases where the buyer and the seller are related. Such
examination will only be required where there are doubts about the acceptability
of the price. Where the proper officer of customs has no doubts about the
acceptability of the price, it should be accepted without requesting further
information from the importer. For example, the proper officer of customs may
have previously examined the relationship, or he may already have detailed
information concerning the buyer and the seller, and may already be satisfied
from such examination or information that the relationship did not influence the
price.

3.Where the
proper officer of customs is unable to accept the transaction value without
further inquiry, he should give the importer an opportunity to supply such
further detailed information as may be necessary to enable him to examine the
circumstances surrounding the sale. In this context, the proper officer of
customs should be prepared to examine relevant aspects of the transaction,
including the way in which the buyer and seller organize their commercial
relations and the way in which the price in question was arrived at, in order to
determine whether the relationship influenced the price. Where it can be shown
that the buyer and seller, although related under the provisions of rule 2(2),
buy from and sell to each other as if they were not related, this would
demonstrate that the price had not been influenced by the relationship. As an
example of this, if the price had been settled in a manner consistent with the
normal pricing practices of the industry in question or with the way the seller
settles prices for sales to buyers who are not related to him, this would
demonstrate that the price had not been influenced by the relationship. As a
further example, where it is shown that the price is adequate to ensure recovery
of all costs plus a profit which is representative of the firm's overall profit
realized over a representative period of time (e.g. on an annual basis) in sales
of goods of the same class or kind, this would demonstrate that the price had
not been influenced.

4.Rule 3(3)(b)
provides an opportunity for the importer to demonstrate that the transaction
value closely approximates to a "test" value previously accepted by
the proper officer of customs and is therefore acceptable under the provisions
of rule 3. Where a test under rule 3(3)(b) is met, it is not necessary to
examine the question of influence under rule 3(3)(a). If the proper officer of
customs has already sufficient information to be satisfied, without further
detailed inquiries, that one of the tests provided in rule 3(3)(b) has been met,
there is no reason for him to require the importer to demonstrate that the test
can be met. In rule 3(3)(b) the term "unrelated buyers" means buyers
who are not related to the seller in any particular case.

Rule3(3)(b)

A
number of factors must be taken into consideration in determining whether one
value "closely approximates" to another value. These factors include
the nature of the imported goods, the nature of the industry itself, the season
in which the goods are imported, and whether the difference in values is
commercially significant. Since these factors may vary from case to case, it
would be impossible to apply a uniform standard such as a fixed percentage, in
each case. For example, a small difference in value in a case involving one type
of goods could be unacceptable while a large difference in a case involving
another type of goods might be acceptable in determining whether the transaction
value closely approximates to the "test" values set forth in rule
3(3)(b).

Notes
to rule 4

1.In applying
rule 4, the proper officer of customs shall, wherever possible, use a sale of
identical goods at the same commercial level and in substantially the same
quantities as the goods being valued. Where no such sale is found, a sale of
identical goods that takes place under any one of the following three conditions
may be used:

(a)a sale at the same
commercial level but in different quantities; or

(b)a sale at a
different commercial level but in substantially the same quantities; or

(c) a sale at a
different commercial level and in different quantities.

2.Having found a
sale under any one of these three conditions adjustments will then be made, as
the case may be, for :

(a)quantity
factors only;

(b)commercial
level factors only; or

(c)both
commercial level and quantity factors.

3.For the
purposes of rule 4, the transaction value of identical imported goods means a
value, adjusted as provided for in rule 4(l)(b) and (c) and rule 4(2) which has
already been accepted under rule 3.

4.A condition for
adjustment because of different commercial levels or different quantities is
that such adjustment, whether it leads to an increase or a decrease in the
value, be made only on the basis of demonstrated evidence that clearly
establishes the reasonableness and accuracy of the adjustment, e.g. valid price
lists containing prices referring to different levels or different quantities.
As an example of this, if the imported goods being valued consist of a shipment
of 10 units and the only identical imported goods for which a transaction value
exists involved a sale of 500 units, and it is recognised that the seller grants
quantity discounts, the required adjustment may be accomplished by resorting to
the seller's price list and using that price applicable to a sale of 10 units.
This does not require that a sale had to have been made in quantities of 10 as
long as the price list has been established as being bona fide through sales at
other quantities. In the absence of such an objective measure, however, the
determination of a value under the provisions of rule 4 is not appropriate.

Note
to rule 5

1.In applying
rule 5, the proper officer of customs shall, wherever possible, use a sale of
similar goods at the same commercial level and in substantially the same
quantities as the goods being valued. For the purpose of rule 5, the transaction
value of similar imported goods means the value of imported goods, adjusted as
provided for in rule 5(2) which has already been accepted under rule 3.

2.All other
provisions contained in note to rule 4 shall mutatis mutandis also apply
in respect of similar goods.

Note
to rule 7

1.The term
"unit/price at which goods are sold in the greatest aggregate
quantity" means the price at which the greatest number of units is sold in
sales to persons who are not related to the persons from whom they buy such
goods at the first commercial level after importation at which such sales take
place.

2.As an example
of this, goods are sold from a price list which grants favourable unit prices
for purchases made in larger quantities.

Sale
quantity

Unit
price

Number
of sales

Total
quantity sold at each price

1-10 units

100

10
sales of 5 units,

5
sales of 3 units

65

11-25
units

95

5
sales of 11 units

55

Over
25 units

90

1
sale of 30 units,
1 sale of 50 units

80

The
greatest number of units sold at a price is 80, therefore, the unit price in the
greatest aggregate quantity is 90.

3.As another example of this, two sales occur. In the first sale 500 units
are sold at a price of 95 currency units each. In the second sale 400 units are
sold at a price of 90 currency units each. in this example, the greatest number
of units sold at a particular price is 500, therefore, the unit price in the
greatest aggregate quantity is 95.

4.A third example would be the following situation where various quantities
are sold at various prices.

(a)Sales

Sale
quantityUnit price

40
units 100

30
units90

15
units100

50
units95

25
units105

35
units90

5
units100

(b)Totals

Total
quantityUnit
price

sold

65
90

5095

60100

25105

In
this example, the greatest number of units sold at a particular price is 65,
therefore, the unit price in the greatest aggregate quantity is 90.

5.Any sale in India, as described in paragraph 1 above to a person who
supplies directly or indirectly free of charge or at reduced cost for use in
connection with the production and sale for export of the imported goods any of
the elements specified in rule10(l)(b), should not be taken into account in
establishing the unit price for the purposes of rule 7.

6.It should be noted that "profit and general expenses" referred
to in rule 7(1) should be taken as a whole. The figure for the purposes of this
deduction should be determined on the basis of information supplied by or on
behalf of the importer unless his figures are inconsistent with those obtaining
in sales in India, of imported goods of the same class or kind. Where the
importer's figures are inconsistent with such figures, the amount for profit and
general expenses may be based upon relevant information other than that supplied
by or on behalf of the importer.

7.The "general expenses" include the direct and indirect costs of
marketing the goods in question.

8.Local taxes payable by reason of the sale of the goods for which a
deduction is not made under the provisions of rule 7(l)(iii) shall be deducted
under the provisions of rule 7(l)(i).

9.In determining either the commissions or the usual profits and general
expenses under the provisions of rule 7(1), the question whether certain goods
are "of the same class or kind" as other goods must be determined on a
case-by-case basis by reference to the circumstances involved. Sales in India,
of the narrowest group or range of imported goods of the same class or kind,
which includes the goods being valued, for which the necessary information can
be provided, should be examined. For the purposes of rule 7 goods of the same
class or kind" includes goods imported from the same country as the goods
being valued as well as goods imported from other countries.

10.For the purposes of rule 7(2) the "earliest date" shall be the
date by which sales of the imported goods or of identical or similar imported,
goods are made in sufficient quantity to establish the unit price.

11.Where the method in rule 7(3) is used, deductions made for the value
added by further processing shall be based on objective and quantifiable data
relating to the cost of such work. Accepted industry formulas, recipes, methods
of construction, and other industry practices would form the basis of the
calculations.

12.It is recognized that the method of valuation provided for in rule 7(3)
would normally not be applicable when, as a result of the further processing,
the imported goods lose their identity. However there can be instances where,
although the identity of the imported goods is lost, the value added by the
processing can be determined accurately without unreasonable difficulty. On the
other hand, there can also be instances where the imported goods maintain their
identity but form such a minor element in the goods sold in the country of
importation that the use of this valuation method would be unjustified. In view
of the above, each situation of this type must be considered on a case-by-case
basis.

Note
to rule 8

1.As a general rule, value of imported goods is determined under these
rules on the basis of information readily available in India. In order to
determine a computed value, however, it may be necessary to examine the costs of
producing the goods being valued and other information which has to be obtained
from outside India. Furthermore, in most cases, the producer of the goods will
be outside the jurisdiction of the proper officer. The use of the computed value
method will generally be limited to those cases where the buyer and seller are
related, and the producer is prepared to supply to the proper officer the
necessary costings and to provide facilities for any subsequent verification
which may be necessary.

2.The "cost or value" referred to in clause (a) of rule 8 is to
be determined on the basis of information relating to the production of the
goods being valued supplied by or on behalf of the producer. It is to be based
upon the commercial accounts of the producer, provided that such accounts are
consistent with the generally accepted accounting principles applied in the
country where the goods are produced.

3.The "cost or value" shall include the cost of elements
specified in clauses (1)(a)(ii) and (1)(a)(iii) of rule 10. It shall also
include the value, apportioned as appropriate under the provisions of the
relevant note to rule 10, of any element specified in rule 10(l)(b) which
has been supplied directly or indirectly by the buyer for use in connection with
the production of the imported goods. The value of the elements specified in
rule 10(l)(b)(iv) which are undertaken in India shall be included only to the
extent that such elements are charged to the producer. It is to be understood
that no cost or value of the elements referred to in this paragraph shall be
counted twice in determining the computed value.

4.The "amount for profit and general expenses" referred to in
clause(b) of rule 8 is to be determined on the basis of information supplied by
or on behalf of the producer unless the producer's figures are inconsistent with
those usually reflected in sales of goods of the same class or kind as the goods
being valued which are made by producers in the country of exportation for
export to India.

5.It should be noted in this context that the "amount for profit and
general expenses" has to be taken as a whole. It follows that if, in any
particular case, producer’s profit figure is low and his general expenses
are high, the producer’s profit and general expenses taken together may
nevertheless be consistent with that usually reflected in sales of goods of the
same class or kind. Such a situation might occur, for example, if a product were
being launched in India and the producer accepted a nil or low profit to offset
high general expenses associated with the launch. Where the producer can
demonstrate a low profit on his sales of the imported goods because of
particular commercial circumstances, his actual profit figures should be taken
into account provided that he has valid commercial reasons to justify them and
his pricing policy reflects usual pricing policies in the branch of industry
concerned. Such a situation might occur for example, where producers have been
forced to lower prices temporarily because of an unforeseeable drop in demand,
or where they sell goods to complement a range of goods being produced in India
and accept a low profit to maintain competitivity. Where the producer's own
figures for profit and general expenses are not consistent with those usually
reflected in sales of goods of the same class or kind as the goods being valued
which are made by producers in the country of exportation for export to India,
the amount for profit and general expenses may be based upon relevant
information other than that supplied by or on behalf of the producer of the
goods.

6.The "general expenses" referred to in clause (b) of rule 8
covers the direct and indirect costs of producing and selling the goods for
export which are not included under clause (a) of rule 8.

7.Whether certain goods are "of the same class or kind" as other
goods must be determined on a case-by-case basis with reference to the
circumstances involved. In determining the usual profits and general expenses
under the provisions of rule 8, sales for export to India of the narrowest group
or range of goods, which includes the goods being valued, for which the
necessary information can be provided, should be examined. For the purposes of
rule 8 "goods of the same class or kind" must be from the same country
as the goods being valued.

Note
to rule 9

1.Value of
imported goods determined under the provisions of rule 9 should to the greatest
extent possible, be based on previously determined customs values.

2.The methods of
valuation to be employed under rule 9 may be those laid down in rules 3 to 8,
inclusive, but a reasonable flexibility in the application of such methods would
be in conformity with the aims and provisions of rule 9.

3.Some examples
of reasonable flexibility are as follows:

(a)Identical goods. - The
requirement that the identical goods should be imported at or about the same
time as the goods being valued could be flexibly interpreted; identical imported
goods produced in a country other than the country of exportation of the goods
being valued could be the basis for customs valuation; customs values of
identical imported goods already determined under the provisions of rules 7 and
8 could be used.

(b)Similar goods. - The requirement
that the similar goods should be imported at or about the same time as the goods
being valued could be flexibly interpreted; similar imported goods produced in a
country other than the country of exportation of the goods being valued could be
the basis for customs valuation; customs values of similar imported goods
already determined under the provisions of rules 7 and 8 could be used.

(c)Deductive method. - The
requirement that the goods shall have been sold in the "condition as
imported" in rule 7(1) could be flexibly interpreted; the ninety days
requirement could be administered flexibly.

Note
to rule 10

In
rule 10(l)(a)(i), the term "buying commissions" means fees paid by an
importer to his agent for the service of representing him abroad in the purchase
of the goods being valued.

Rule
10(l)(b)(ii)

1.There are two
factors involved in the apportionment of the elements specified in rule 10(l)(b)(ii)
to the imported goods - the value of the element itself and the way in which
that value is to be apportioned to the imported goods. The apportionment of
these elements should be made in a reasonable manner appropriate to the
circumstances and in accordance with generally accepted accounting principles.

2.Concerning the value of the
element, if the importer acquires the element from a seller not related to him
at a given cost, the value of the element is that cost. If the element was
produced by the importer or by a person related to him, its value would be the
cost of producing it. If the element had been previously used by the importer,
regardless of whether it had been acquired or produced by such importer, the
original cost of acquisition or production would have to be adjusted downward to
reflect its use in order to arrive at the value of the element.

3.Once a value
has been determined for the element it is necessary to apportion that value to
the imported goods. Various possibilities exist. For example, the value might be
apportioned to the first shipment if the importer wishes to pay duty on the
entire value at one time. As another example, the importer may request that the
value be apportioned over the number of units produced up to the time of the
first shipment. As a further example, he may request that the value be
apportioned over the entire anticipated production where contracts or firm
commitments exist for that production. The method of apportionment used will
depend upon the documentation provided by the importer.

4.As an
illustration of the above, an importer provides the producer with a mould to be
used in the production of the imported goods and contracts with him to buy 10000
units. By the time of arrival of the first shipment of 1000 units, the producer
has already produced 4,000 units. The importer may request the proper officer of
customs to apportion the value of the mould over 1,000 units, 4,000 units or
10,000 units.

Rule
10(l)(b)(iv)

1.Additions for the elements
specified in rule 10(l)(b)(iv) should be based on objective and quantifiable
data. In order to minimise the burden for both the importer and proper officer
of customs in determining the values to be added, data readily available in the
buyer's commercial record system should be used in so far as possible.

2.For those
elements supplied by the buyer which were purchased or leased by the buyer, the
addition would be the cost of the purchase or the lease. No addition shall be
made for those elements available in the public domain, other than the cost of
obtaining copies of them.

3.The case with
which it may be possible to calculate the values to be added will depend on a
particular firm's structure and management practice, as well as its accounting
methods.

4.For example, it
is possible that a firm which imports a variety of products from several
countries maintains the records of its design centre outside the country of
importation in such a way as to show accurately the costs attributable to a
given product. In such cases, a direct adjustment may appropriately be made
under the provisions of rule 10.

5.In another
case, a firm may carry the cost of the design centre outside the country of
importation as a general overhead expense without allocation to specific
products. In this instance, an appropriate adjustment could be made under the
provisions of rule 10 with respect to the imported goods by apportioning total
design centre costs over total production benefiting from the design centre and
adding such apportioned cost on a unit basis to imports.

6.Variations in the above
circumstances will, of course, require different factors to be considered in
determining the proper method of allocation.

7.In cases where
the production of the element in question involves a number of countries and
over a period of time, the adjustment should be limited to the value actually
added to that element outside the country of importation.

Rule
10(l)(c)

1.The royalties
and licence fees referred to in rule 10(l)(c) may include among other things,
payments in respect to patents, trademarks and copyrights. However, the charges
for the right to reproduce the imported goods in the country of importation
shall not be added to the price actually paid or payable for the imported goods
in determining the customs value.

2.Payments made by the buyer for
the right to distribute or resell the imported goods shall not be added to the
price actually paid or payable for the imported goods if such payments are not a
condition of the sale for export to the country of importation of the imported
goods.

Rule
10(3)

Where
objective and quantifiable data do not exist with regard to the additions
required to be made under the provisions of rule 10, the transaction value
cannot be determined under the provisions of rule 3. As an illustration of this,
a royalty is paid on the basis of the price in a sale in the importing country
of a litre of a particular product that was imported by the kilogram and made up
into a solution after importation. If the royalty is based partially on the
imported goods and partially on other factors, which have nothing to do with the
imported goods (such as when the imported goods are mixed with domestic
ingredients and are no longer separately identifiable, or when the royalty
cannot be distinguished from special financial arrangements between the buyer
and the seller), it would be inappropriate to attempt to make an addition for
the royalty. However, if the amount of this royalty is based only on the
imported goods and can be readily quantified, an addition to the price actually
paid or payable can be made.

Site
is maintained under supervision of Directorate General of Systems and
Data Management, Hotel Samrat, Chanakyapuri, New Delhi